U.S. counterterrorism laws and policies have had negative impacts that make it more difficult for charities and grantmakers to operate and in some cases, block donations for charitable programs from being used at all. The examples below, based on news reports and OMB Watch publications, illustrate this collateral damage. Changes in policy can support the work of charities, which often addresses the root causes of terrorism, without diminishing public safety.
Background
To date, eight U.S. charities have been designated as supporters of terrorism, out of 48 charities designated worldwide. Overall, there are over 500 such designations. A charity can be shut down based on secret evidence that it never sees. Once a charity is shut down, its assets are frozen. There is no independent review of Treasury’s action, and the appeal process is very limited.
The impact of these laws goes far beyond the eight organizations that have been shut down. The laws that authorize shut down are based on emergency powers that have now becomes long-term problems for the entire U.S. nonprofit sector.
Due Process Denied: Charities Cannot Defend Themselves
Abstract: The vague legal framework that governs when charities and foundations can be shut down is exacerbated by the lack of traditional due process afforded within the International Emergency Economic Powers Act (IEEPA) to protect against mistake or abuse. Any challenge to Treasury’s actions must happen within the context of no pre-seizure notice or hearing, classified evidence that the frozen organization can never view, and a court system that gives extreme deference to Treasury actions when national security issues are involved. This standard makes it too easy for Treasury to create an inference of wrongdoing based on unsubstantiated evidence, rather than building a clear, accurate, and convincing case that a charity or foundation is engaged in wrongdoing.
Unlike the civil challenges explained earlier, in criminal trials, the government must disclose its evidence, providing defendants and the general public its first glimpse of the complete administrative record. Consistently, this evidence has proven to be of poor quality, sometimes based on substandard intelligence or faulty translations. As a result, many observers in the nonprofit sector question the justification for Treasury’s designations. [1]
Before an attorney can represent a designated organization, he or she must get a license from Treasury [2]. Representing a designated organization without a Treasury license is considered “material support” to a designated organization and is illegal. In addition, if an organization wishes to pay its legal fees with assets frozen and seized by OFAC (typically the only funding available), it must ask for a separate Treasury license [3]. In the past, OFAC provided licenses to designated organizations to either obtain counsel or access frozen funds for legal fees. However, recent license applications have been denied, so organizations cannot challenge their designations.
In 2004, Islamic American Relief Agency (IARA) applied to OFAC for a license to obtain access to its frozen funds for legal fees while challenging its designation. OFAC responded that any fees must be paid with “fresh funds.” In other words, funds raised by IARA after its designation and from foreign sources not subject to U.S. laws or in the possession or control of any U.S. person [4].
In August 2007, Al-Haramain Islamic Foundation-Oregon (Al-Haramain) filed suit in federal court in Portland, OR, seeking removal from the SDGT list [5]. OFAC informed Al-Haramain in February 2007 that use of its frozen funds would be permitted to pay legal fees if:
From the June 2008 OMB Watch report: Collateral Damage: How the War on Terror Hurts Charities, Foundations and the People They Serve
Frozen Charitable Funds: $20.7 Million in Limbo
Abstract: Current counterterrorism financing policy allows the funds of designated charitable organizations to sit in frozen accounts indefinitely. The intent of the original donor is disregarded, and funds are unable to achieve any charitable purpose. .. Some of these funds have been in frozen accounts for more than six years. The sanctions laws that authorize the designation and freezing of assets do not provide any timeline or process for long-term disposition, meaning that funds could remain frozen for as long as the root national emergency authorizing the sanctions lasts. Since the “war on terror” is very unlikely to have a clear ending, the funds could remain frozen indefinitely.
Most of the frozen charitable funds originated with relatively small donors who intended to provide critical humanitarian assistance, particularly to people displaced by natural disaster, war or famine. Although current regulations grant Treasury authority to allow transfer of these funds [7], research indicates that no blocked funds have been released for charitable purposes, despite several requests. In fact, Treasury has repeatedly said that allowing transfers for humanitarian and disaster aid is not in the national interest.
A group of U.S. nonprofits has initiated a dialogue with Treasury in an attempt to resolve this situation. As their November 2006 letter to Treasury states, “The need for humanitarian assistance is not frozen and has continued to grow since 2001. Meanwhile frozen funds sit in bank accounts helping no one, while critical needs go unmet.“[8] To date, there is no resolution in sight.
From the June 2008 OMB Watch report: Collateral Damage: How the War on Terror Hurts Charities, Foundations and the People They Serve
Abstract: The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has recently released the 2007 Terrorist Assets Report to Congress. The report details that $336.2 million of seized assets allegedly related to terrorism is currently being held by Treasury. Of that, $20.7 million originated with foreign terrorist organizations, a category that includes charitable organizations. This number is up from $16.4 million detailed in the 2006 report. It also reports that $315.5 million originated with designated state sponsors of terrorism. We do not know how much of the frozen $20.7 million originated as charitable assets. However, OMB Watch along with charitable and nonprofit organizations have called on Treasury to release frozen funds belonging to charities designated as supporters of terrorism “to trustworthy aid agencies that can ensure the funds are used for their intended charitable purposes.”
Oct. 17, 2008: Treasury Releases 2007 Terrorist Assets Report
Barriers to Aid Programs: Extreme No-Contact Policy at Odds with Red Cross Standards
Abstract: When Mercy Corps and other Western aid agencies reached this devastated village on the front line of the battle between Israel and Hezbollah with food and medicine, they quickly discovered they had a big problem: the United States. Like all other international relief agencies here that receive financing from the American government, Mercy Corps is barred from giving out money or aid through Hezbollah, the Shiite militant group that is considered a terrorist organization by the United States. But as with all the most demolished areas in southern Lebanon, where whole villages have been flattened by Israeli bombs and there is no food, water or electricity, this village is the domain of Hezbollah — and little seems to bypass the group.
Aug. 23, 2006: Relief Agencies Find Hezbollah Hard to Avoid from the New York Times
Abstract: A 2006 Chicago Tribune story describes how aid organizations face barriers delivering aid in Lebanon because Hezbollah, which has been designated as a terrorist organization by the U.S. Treasury Dept., is part of local government and aid delivery network. It noted that “Every U.S. aid agency is facing the exact same problem,” said a spokes man for a West Coast aid agency operating in Lebanon, who asked not to be named because the subject is “super, super, super sensitive.” “We’re waiting on word from the Treasury on that. We’re waiting on some sort of guidance.” The Treasury spokeswoman, Molly Millerwise, said charities operating in the U.S. are barred from knowingly financing or “working with” Hezbollah. The question is what might constitute “working with,” given that many Lebanese officials are affiliated with the group.”
September 2006: Treasury Guidelines Slowing Down Humanitarian Aid to Lebanon
Abstract: On Nov. 24, 2008 the two-month retrial against the Holy Land Foundation for Relief and Development (HLF) and five of its leaders [9]ended with guilty verdicts on charges of supporting Hamas, which was designated as a terrorist organization in 1995. The convictions came even though the prosecution admitted that all funds went to local charities, called zakat committees, that are not on government watchlists. Attorneys for the defendants said they would appeal. The defense argued that the zakat committees were not on the government’s list of illegal groups and that HLF made every effort to ensure funds were spent only for charity, on a “need, not creed” basis.
The defense argued that it was not illegal for HLF to deliver aid through zakat committees because they have never been designated as supporters of terrorism by the U.S. The question of whether or not it was legal for HLF to work with the zakat committees is central to the case. Robert McBrien from Treasury’s Office of Foreign Assets Control, a new witness, told the jury that designation is not necessary and that keeping up with front groups “is a task beyond the wise use of resources.” Instead, he said Treasury targets umbrella groups. However, since Treasury has known about these particular groups since at least 2004 when it indicted HLF, that rationale does not explain Treasury’s continuing failure to designate the groups. According to AlterNet, the same zakat committees have received aid from the International Red Cross and the U.S. Agency for International Development.
Treasury’s legal theory makes it impossible for U.S. charities operating abroad to protect themselves by checking local charity partners against the list of designated supporters of terrorism. The threat of being shut down by Treasury has already discouraged international programs from operating in conflict zones, and now the potential for severe criminal sanctions could further exacerbate this situation.
Dec 2, 2008: Conviction of Holy Land Foundation Raises Questions, Concerns for Nonprofits
Abstract: Two representatives of the U.S. Treasury Department’s Office of Terrorist Financing and Financial Crimes met with Detroit area Muslim and Arab-Americans to discuss charitable giving in preparation for Ramadan, a Muslim holy month beginning next week. During Ramadan donations to charity are typically at their highest because of a religious requirement, zakat, a practice of giving to good causes. The meeting was organized by the U.S. Attorney’s Office and Muslim leaders to address questions and concerns.
The Detroit News reported that “Audience members unsuccessfully sought absolute assurances they could not be prosecuted for giving to a charity that is legal today but could be deemed a terrorist front tomorrow…Frustrated attendees also wondered how they could help suffering friends and relatives in Gaza or southern Lebanon without working through agencies that must deal with Hamas or Hezbollah, both designated terrorist organizations by the U.S. government. Linda Mansour of the American-Arab Anti-Discrimination Committee said most donors are average citizens who want their money to go for food and medicine but now fear prosecution. Michael Rosen, a policy adviser with the Treasury Department, said the government wants to establish a safe and approved means of providing humanitarian aid but has not done so yet.”
Sept 7, 2007: Uncertain Charitable Giving for Many Muslim and Arab-Americans
Abstract: In 2003, Alliance [10], the world’s leading magazine on philanthropy and social investment, published a study on perceived barriers to international giving by U.S. foundations [11]. The study found that complying with counterterrorism measures is particularly difficult in the context of cross-border grants. Organizations interviewed for the study noted practical problems in applying counterterrorism measures and organizational anxiety due to the draconian consequences of non-compliance. Many also feared the long-term consequences to international grantmaking because of the unpredictability of counterterrorism enforcement – inexperienced grantmakers “will [be] frighten[ed] away … think[ing] that it is not worth the effort.” [12]
From the June 2008 OMB Watch report: Collateral Damage: How the War on Terror Hurts Charities, Foundations and the People They Serve
Abstract: The Rockefeller Philanthropy Advisors suspended funding for a Caribbean program designed to “kick-start a flow of American charity” to that often-overlooked region. Inability to comply with the Guidelines was cited as the reason, and Eileen Growald, Rockefeller Philanthropy’s chairwoman, stated that “[i]f these guidelines become the de facto standard of best practices for giving abroad, we might very well have to stop making grants outside the United States.” [13] Later in the article, Robin Krause of the law firm Patterson, Belknap, Webb & Tyler said, “If a donor can choose between three programs, he’s likely to choose the least risky one, and right now that’s not an international one.”
Aug. 5, 2003: Small Charities Abroad Feel Pinch of U.S. War on Terror from New York Times
Missed Opportunity for Public Diplomacy
Abstract: There is data to suggest that international assistance does much more than make Americans feel good; it also makes the world feel good about America, thereby counteracting anti-American sentiment. For example, Terror Free Tomorrow conducted surveys within Indonesia to gauge public opinion about the U.S. after the 2004 Indian Ocean tsunami, when more than $13.4 billion in U.S. humanitarian aid, both public and private, went to help victims[14]. Due to the tsunami relief, 44 percent of respondents in January 2006 reported a favorable view of the U.S., compared to 15 percent in May 2003, before the tsunami [15]. In addition, Indonesia reported the lowest level of support for Osama bin Laden and terrorism since 9/11. This same phenomenon was recorded by Terror Free Tomorrow in Pakistan after the 2005 earthquake [16]; 75 percent of Pakistanis had a more favorable opinion of America, and most cited earthquake relief as the reason.
From the June 2008 OMB Watch report: Collateral Damage: How the War on Terror Hurts Charities, Foundations and the People They Serve
Treasury Guidelines for Charities: The Wrong Approach
Abstract: BNA Money and Politics reports that the Council of Foundations sent a letter to Treasury Secretary Paulson on behalf of the Treasury Guidelines Working Group. OMB Watch is apart of the Working Group, that is once again asking for the withdrawal of the Anti-terrorist Financing Guidelines: Voluntary Best Practices for U.S.-based Charities. This latest version released September 29, 2006, includes some of the group’s suggested changes, but the letter expresses the consensus that numerous concerns remain. As the letter states, “the Guidelines significantly exaggerate the extent to which U.S. charities have served as a source of terrorist funding.” The administrative burden of information collection and reporting requirements results in less time that can be spent for program activities. The Guidelines are set as voluntary by the Treasury Department, yet organizations have been suspected of incompliance. “Members of the Working Group are also aware that IRS agents–both in the context of audits and exemption applications–have questioned organizations about their compliance with the Guidelines. If the Guidelines are voluntary, they should not become a criterion for evaluating tax-exempt status.”
Dec. 19, 2006: Charities Call For Withdrawal of Anti-Terror Guidelines
Council of Foundation’s letter
Abstract: The Treasury Guidelines Working Group is not alone in its call for the withdrawal of the Guidelines. Widespread objections have followed each version of the Guidelines [17], underscoring problems with the underlying policies behind, and propagated by, the Guidelines. Most troubling to foundations is the fact that no version of the Guidelines acknowledges the tremendous amount of due diligence already being performed by grantmaking organizations. ..To further complicate the issue, the Guidelines offer no legal protection to an organization. The Introduction to the Guidelines states, “adherence to these Guidelines does not excuse any person (individual or entity) from compliance with any local, state, or federal law or regulation, nor does it release any person from or constitute a legal defense against any civil or criminal liability for violating any such law or regulation.” [18]
From the June 2008 OMB Watch report: Collateral Damage: How the War on Terror Hurts Charities, Foundations and the People They Serve
Abstract: The Treasury Guidelines Working Group has also learned of situations where IRS agents have asked about compliance with the Guidelines in the context of IRS audits and tax exemption applications [19]. Organizations must decide whether to divert resources from charitable work to ineffective and discriminatory counterterrorism measures or to fight back, potentially losing funding and diverting time and attention away from their core mission.
March 2007: Patriot Act Drives Banking Problems for U.S. Muslim Charity
Abstract: After a September 2006 raid by the federal Joint Terrorism Task Force, Life for Relief and Development (Life) of Michigan has had ongoing problems getting service from banks, even though at the time of the raid, the Federal Bureau of Investigation (FBI) said the investigation was not related to terrorism, and no charges have been filed. The only bank that will allow the humanitarian aid organization to make international wire transfers has required the group to comply with the Treasury Department’s Voluntary Anti-Terrorist Financing Guidelines, which are supposed to be voluntary and flexible. However, Life officials say banks are reacting to the threat of litigation under unconstitutional provisions of the Patriot Act.
From the June 2008 OMB Watch report: Collateral Damage: How the War on Terror Hurts Charities, Foundations and the People They Serve
Abstract: Treasury has placed a heavy emphasis on checking names against its terrorist watch lists as a means of determining whether or not transactions with an employee, grantee, or other contact violate counterterrorism laws. ..The law prohibits transactions with people or entities deemed by the Executive Branch to be associated with terrorism. Many foundations understand list checking as the easiest way to comply with this requirement; 69 percent of respondents in a Grantmakers Without Borders survey engaged in list checking [20]. Many organizations that list-check use special software that costs $500 to $1,000 per year [21]. The Guidelines offer no alternatives to list checking and do not acknowledge circumstances when list checking is not necessary, such as when a grantee is well known to the grantmaker. As an alternative, the Council on Foundations recommends four steps: assess the risk that a grant will wind up in the hands of terrorists; based on the outcome of the risk assessment, decide whether an anti-terrorism compliance program is necessary; if a compliance program is needed, devise and implement a program that is appropriate; and finally, document all the steps taken [22]. At the end of the day, effective prevention of diversion of funds comes down to knowing your grantee and establishing a relationship that encourages trust and transparency.
From the June 2008 OMB Watch report: Collateral Damage: How the War on Terror Hurts Charities, Foundations and the People They Serve
Using Security Laws to Monitor, Silence Free Speech
Abstract: The U.S. Department of Homeland Security tracked the protest plans of a peaceful Washington area antiwar group and passed the information to the Maryland State Police, which had previously labeled the activists as terrorists in an intelligence file. The federal agency obtained two e-mails containing plans for upcoming demonstrations at a military recruiting center in Silver Spring in 2005, the first indication that DHS might have worked with the police to monitor advocacy groups. The notification by DHS appears in a state police file on the DC Anti-War Network, or DAWN, provided to The Washington Post under the Public Information Act. The file is one of five created by the state police on the antiwar group in 2005 and 2006. Along with 53 individuals and about two dozen other protest groups, including Amnesty International and CASA of Maryland, the network was labeled a terrorist group in an internal police database. Police have said the names were not put on federal anti-terrorism lists.
Feb. 17, 2009: Federal Agency Aided Md. SPying: Homeland Security Dept. Gave Information to State Police
[1] Under the Classified Information Procedures Act, defense attorneys had government clearances that allowed them to review classified material. However, they were prohibited from sharing it with their clients. Los AngelesTimes, “Evidence Against Muslim Charity Seems Fabricated” (Feb. 25, 2007).
[2] 31 C.F.R. 595.204.
[3] OFAC may issue licenses authorizing a designated entity to access frozen funds for paying attorneys’ fees. 31 C.F.R. 595.506; Global Relief Found., 207 F. Supp. 2d at 786.
[4] See William B. Hoffman, How to Approach a New Office of Foreign Assets Control Sanctions Program, 27 Stetson L. Rev. 1413, 1422-23 (1998). At least one court has upheld OFAC’s fresh-funds rule. Beobanka d.d. Belgrade v. United States, Nos. 95 Civ. 5138 (HB), 95 Civ. 5771 (HB), 1997 WL 23182, at *2 (S.D.N.Y. Jan. 22, 1997) (holding that the fresh-funds policy was “rationally related to the legitimate goals of the [Federal Republic of Yugoslavia] sanctions program”).
[5] William McCall, “Ex-charity director pleads not guilty on return to Ore.” Associated Press (Aug. 16, 2007).
[6] Declaration of Adam Szubin, Dir. Of OFAC, Al-Haramain Islamic Foundation v. Treasury, United Stated District Court, District of Oregon, C.V. 07-1155-K1, p. 28-30.
[7] See 31 C.F.R. 501 and 597.
[8]See OMB Watch Letter to Henry Paulson, Secretary of the U.S. Department of Treasury, Nov. 6, 2007. Available at http://www.ombwatch.org/npadv/Paulson_letter.pdf.
[9] Although Holy Land Foundation board members who were on trial had counsel, the Holy Land Foundation itself was unrepresented.
[10] http://www.alliancemagazine.org/
[11] Rachel Humphrey, “Alliance Extra – June 2003.” Alliance (June 2003). Available at http://www.allavida.org/alliance/axjune03a.html.
[12] Rachel Humphrey, “Alliance Extra – June 2003.” Alliance (June 2003). Available at http://www.allavida.org/alliance/axjune03a.html.””
[13] Stephanie Strom, “Small Charities Abroad Feel Pinch of U.S. War on Terror,” The New York Times, (Aug. 5, 2003).
[14] http://www.internationaldonors.org/issues/pdf/tlp_exec-summary.pdf
[15] http://www.terrorfreetomorrow.org/articlenav.php?id=82
[16] http://www.terrorfreetomorrow.org/articlenav.php?id=5#top
[17] See OMB Watch Letter to U.S. Department of Treasury, Feb. 1, 2006, available at http://www.ombwatch.org/npadv/PDF/treascomms/OMBWtreascomms.pdf.
See also Council on Foundations Letter to U.S. Department of Treasury, Feb. 1, 2006, available at http://www.ombwatch.org/npadv/PDF/treascomms/WGcomms.pdf.
See also Muslim Public Affairs Council Letter to U.S. Department of Treasury, January 2006, available at http://www.ombwatch.org/npadv/PDF/treascomms/MPACtreascomments.pdf.
See also Kinder USA Letter to U.S. Department of Treasury, Feb. 1, 2006, available at http://www.ombwatch.org/npadv/PDF/treascomms/KUSAtreascomments.pdf.
See also ACLU Letter to U.S. Department of Treasury, January 2006, available at http://www.ombwatch.org/npadv/PDF/treascomms/MPACtreascomments.pdf.
See also Muslim Advocates Letter to U.S. Department of Treasury, Feb. 1, 2006, available at http://www.ombwatch.org/npadv/PDF/treascomms/MAtreascomments.pdf.
See also Friends of Charities Association (FOCA) Letter to U.S. Department of Treasury, Dec. 5, 2005, available at http://www.ombwatch.org/npadv/PDF/treascomms/FOCAtreascomments.pdf.
See also Treasury Guidelines Working Group Letter to U.S. Department of Treasury Dec. 16, 2006 available at http://www.usig.org/PDFs/TGWG_Letter_to_Treasury.pdf .
See also Grantmakers Without Borders Letter to U.S. Department of Treasury, Dec. 22, 2006, available at http://www.internationaldonors.org/news/1222pressrelease.htm.
[18] http://www.treas.gov/offices/enforcement/key-issues/protecting/docs/guid…, Footnote 1.
[19] http://www.cof.org/files/Documents/International_Programs/TreasuryLetter…
[20] Most check both their international grantees and their U.S.-based grantees against the Terrorist Exclusion List maintained by the Secretary of State and the SDGT list maintained by the Office of Foreign Assets Control.
[21] http://www.mott.org/toolbox/resources/patriotact/resources.aspx
[22] http://www.cof.org/files/Documents/Newsletters/InternationalDateline/200…